Softening the Revlon Reasonableness Standard

Business Law Today

January, 2015, Peter J. Walsh, Jr., Andrew H. Sauder

“Although the record before us reveals a board process that sometimes fell short of ideal, Revlon requires us to examine whether a board’s overall course of action was reasonable under the circumstances as a good faith attempt to secure the highest value reasonably attainable.” These are the words of the Supreme Court of Delaware, and they portend good news for directors selling a company, particularly when no competing bid has emerged. In C&J Energy Servs., Inc. v. City of Miami Gen. Employees’ and Sanitation Employees’ Ret. Trust, No. 655/657, 2014 (Del. Dec. 19, 2014), the Supreme Court of Delaware recently reversed a Court of Chancery ruling, striking down a preliminary injunction that: (1) enjoined a pending merger for 30 days, (2) required a committee of the selling corporation’s board to actively solicit alternative bids for the corporation during that time, and (3) declared (contrary to the merger agreement) that the counterparty in the transaction could not consider the required solicitation to be a breach of contract. Along the way, the Supreme Court explained that the board’s actions did not violate any duties it may have owed under the often-invoked Revlon standard of review.